7/29/2014 9:10:31 AM
Market rallies back from the abyss...
Recommendation: Take no action.
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Long DIA at $161.48 as of December 19, 2013
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Value Portfolio:
Long SDRL at $33.90 on June 15, 2012 (Shares were put to us when options expired. We were paid $1.10 per share when we sold those options and bought shares for $35.00 each.) We have collected dividends: June 10, 2014 $1.00, March 5, 2014 $0.98, December 3, 2013 $0.95, September 5, 2013 $0.91, June 5, 2013 $0.88, $1.70 Dec 4, 2012, $0.84 Sep 4, 2012. Total = $6.28 in dividend payments.
Short FXE at $124.19 on August 24, 2012
Long UUP at $22.43 on August 24, 2012
Short FXE at $134.48 on October 4, 2013
Long SDRL at $35.43 on Feb 18, 2014
Long SDRL at $33.50 on March 21, 2014 (Shares were put to us when options expired. We were paid $1.50 per share when we sold those options and bought the shares for $35.00 each.) We have collected dividends: June 10, 2014 $1.00.
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A small gap up at the open was followed by an hour of selling. In baseball, a hard hit ball that comes back at the pitcher is known as a "comebacker". Most of the time, the pitcher can field it cleanly and make a throw for an out but sometimes the pitcher gets hit with the ball, which never ends well and is very scary. After that hour of selling, though, the bulls fielded the ball and were able to recover through the rest of the session with the major indexes posting gains, although the NASDAQ-100 and S&P-500 were barely positive. This left the Dow still below its 20-Day Movnig Average (DMA) but the NASDAQ-100 and S&P-500 closed above their respective 20-DMAs. All three closed above their 50- and 200-DMAs, are in trading states, and have a BULLISH BIAS. The Semiconductor Index (SOX 615.99 -0.66) traded quite a bit lower but all but made up for it by the close and appears to have bottomed. It remains below its 20- and 50-DMAs. The Dow Jones Transports (IYT 149.08 -1.69) lost more than one percent to close just above its 20-DMA and shifted to a trading state. The Finance Sector ETF (XLF 22.90 +0.01) closed flat and just above its 20-DMA. The three canaries all closed with losses: the Russell-2000 (IWM 113.03 -0.57) posted a fractional loss, the Bank Index (KBE 32.37 -0.37) lost more than one percent as did the Regional Bank Index (KRE 38.69 -0.43). All three closed below their respective 20-, 50-, and 200-DMAs, All three are on the verge of shifting to downtrend states. All three maintain a BEARISH BIAS. Longer Term Bonds (TLT 115.51 -0.16) appears to be putting in a top. It is, however, in an uptrend state and maintains a BULLISH BIAS and is above its 20-, 50-, and 200-DMAs. Trading volume remained light with 589M shares traded on the NYSE. Trading volume on the NASDAQ was below average with 1.770B shares traded.
There was a single economic report of interest released:
• Pending Home Sales (Jun) fell -1.1% versus an expected -0.8% fall
The report was released a half hour into the session.
Apple (AAPL 99.02 +1.35) added more than one percent. AAPL constitutes about 20 percent of the NASDAQ-100 and nearly five percent of the S&P-500.
Seadrill Limited (SDRL 36.79 -0.70 losing less than two percent after having been down more than three percent intraday. It shifted to a downtrend state. We sold March 2014 $35.00 put contracts for $150 at the open on Feb 18th, 2014 and bought shares at $35.43. The stock is now trading ex-dividend for $0.98 and one dollar for total dividends issued of $1.98. The shares were put to us at $35.00 less the $1.50 per share we were paid for the puts, so we have an effective price of $33.50.
The U.S. dollar and the Euro were unchanged.
The yield for the 10-year treasuries fell a single basis point to close at 2.46. The price of a barrel of crude oil closed down forty-four cents to close at $101.67.
The implied volatility for the S&P-500 (VIX 12.56 -0.13) fell one percent. The implied volatility for the NASDAQ-100 (VXN 13.84 +0.48) rose more than three percent.
Market internals were bearish. Decliners led advancers 4:3 on the NYSE and by 7:4 on the NASDAQ. Down volume led up volume 3:2 on both the NYSE and the NASDAQ. The index put/call ratio fell -0.37 to close at 1.12. The equity put/call ratio fell -0.03 to close at 0.59.
Conclusion/Commentary
Monday's comebacker sets equities up for a rally. With the potential for a top in longer-term bond prices, selling in bonds could cause a liquidity fueled rally that pushes equities to new highs. We will remain long to see if Tuesday results in a more bullish outlook for equities in the near term.
We hope you have enjoyed this edition of the McMillan portfolio. You may send comments to mark@stockbarometer.com.
